ESPN Bet has no plans to copy DraftKings by adding a fee on winning bettors, at least not anytime soon.
“You should expect us to be observers. A tax surcharge in early 2025 isn’t even on our radar. However, I hesitate to say never.” Penn Entertainment CEO Jay Snowden said Thursday during the ESPN Bet parent’s second-quarter earnings call.
Penn reported Q2 revenue of $1.66 billion and a net income loss of $26.8 million, dragged down by its lagging but improved interactive segment. Concern over the segment’s slow growth has led some investors to push for a total sale, which Penn did not address during the call.
PENN stock was up 7% to $18.48 a share by midday on its narrowed interactive loss, on about half its average volume.
ESPN Bet to launch in New York
ESPN Bet will launch in New York before the start of college football season on Aug. 24, Snowden announced on the call. It is one of four “high-tax” states in line for the new DraftKings surcharge, which could add $220 million to its bottom line but has stoked concerns over customers departing.
New Yorkers should not expect the same hefty promotions from ESPN Bet it has doled out in other states.
“We’re going to continue to take a different approach launching in New York versus what we did when we launched across 17 states in the fourth quarter of last year and really lean a lot more on the product improvements, the integration, and of course the connection that ESPN has with millions and millions of New York-based sports fans,” Snowden said.
Heavy promotional spending drove ESPN Bet to the No. 3 spot in Ohio last December, as it gave out more than nearly each of the state’s 19 betting apps combined. Roughly 41% of its handle for the month was promotional.
Promos to decline into football season
Promotions have come back down to earth in recent months, and Penn is eyeing a 2-3% range for the app next year. That is significant given New York’s high-octane promotional environment when sportsbooks first launched there in 2022.
NFL betting is typically one of the most promo-heavy times of the year for sportsbooks. However, Snowden reiterated that Penn’s betting app will rely more on upcoming product enhancements and integrations with ESPN. That spending is already baked into Penn’s guidance for Q3.
ESPN Bet narrows losses
Interactive, which houses ESPN Bet and Penn’s other online gaming ventures, posted an adjusted EBITDA loss of $102.8 million in Q2. That was a $93 million improvement from Q1 and $29 million better than Deutsche Bank projected. Meanwhile its retail segment had another strong quarter, with $1.4 billion in revenue and $496.6 million of adjusted EBITDA.
ESPN Bet held 8.2% across states that report operator-specific data, versus 4.4% in Q1 when it massively underperformed. The industry averaged 7.5% in Q2, according to an Eilers & Krejcik Report cited in Penn’s investor presentation.
ESPN Bet was No. 2 in parlay mix in Illinois, the only state that breaks out that data, from April to May at 24.2%, though that is down from its 41% mix in Q1.
ESPN Bet to rely on product enhancements
Penn previewed most of its long-awaited product changes in its last earnings report. Management said the majority of those will be in place before the New York launch, as well as the following integrations with ESPN:
- Targeted betting offers in the ESPN Fantasy App
- “FantasyCast” integration, featuring bets in the ESPN Fantasy App
- An enhanced menu of spreads and totals in the ESPN native app
- A dedicated odds and futures page in the ESPN native app
“When you think about knowing the fan avidity, personalization, usage preferences of all those people, and then being able to target them, whether it’s introducing them to sports betting or people that are already sports bettors, giving them personalized offers, and then moving them seamlessly between apps with no friction, it is a massive opportunity,” said Todd George, executive vice president of operations.
